Micro, Small and Medium Enterprises (MSMEs) plays an important
role in the economic fabric of the country but it continue to face constraints
in obtaining adequate finance, particularly in terms of their ability to
convert their trade receivables into liquid funds.

In order to address the above constraints of MSMEs RBI want to
provide an institutional mechanism called TReDS for financing trade receivables
and to raise the adequate funds from multiple financers.

(Trade receivables are amounts billed by a business to its
customers when it delivers goods or services to them in the ordinary course of
business. Invoices are list of goods sent or services provided, with a statement of the sum due
for these.)

What exactly is TReDS (Trade Receivables

Discount System ) ?

TReDs is a scheme for setting up and operating the
institutional mechanism to facilitate thefinancing of bills of MSMEsfrom corporate and other buyers, including
government departments and public sector undertakings (PSUs).

MSME sellers, corporate and other buyers, including
the government departments and PSUs, and financiers (both banks and NBFCs)will be direct participants in the TReDS.

The TReDS will provide the platform to bring these
participants together for facilitating uploading, accepting, discounting,
trading and settlement of the invoices or bills of MSMEs.

The TReDS should have aminimum paid up equity
capital of 25 crore rupeesand it will not allow any credit.

Among all the entitiesonly promoters will be permitted to have
shareholding in excess of 10 percent of the equity capital of the TReDS.

The foreign shareholding in the TReDS would be as per
the extant foreign investment policy.

TReDS should have sound technological basis to support
its operations, be able to provide electronic platform for all the
participants and information about bills, discounting and quotes should be
in real time supported by a robust information system.

The TReDS shall have a suitableBusiness Continuity Plan (BCP)including a disaster recovery site and shall have
an online surveillance capability which monitors positions, prices and
volumes in real time so as to check system manipulation.